Marketing Scoops: moneylaundering

Telegram has taken decisive action against two massive black markets operating on its platform, shutting down operations that have generated a combined $35 billion. These illicit markets were known for selling stolen data and offering services to launder cryptocurrency. According to a report by blockchain research firm Elliptic, the two Chinese-language black markets, Xinbi Guarantee and Huione Guarantee, were banned from Telegram…….Continue reading….

By: Yasmeeta Oon

Source: Digital Market Reports

Critics:

The literature on the black market has not established a common terminology and has instead offered many synonyms including subterranean, hidden, grey, shadow, informal, clandestine, illegal, unobserved, unreported, unrecorded, second, parallel, and black. There is no single underground economy; there are many. These underground economies are omnipresent, existing in market oriented as well as in centrally planned nations, be they developed or developing.

Those engaged in underground activities circumvent, escape, or are excluded from the institutional system of rules, rights, regulations, and enforcement penalties that govern formal agents engaged in production and exchange. Different types of underground activities are distinguished according to the particular institutional rules that they violate:

The illegal economy
The unreported economy
The unrecorded economy
The informal economy

Participants try to hide their illegal behavior from the government or regulatory authority. Cash is the preferred medium of exchange in illegal transactions, since cash transactions are less easily traced. Common motives for operating in black markets are to trade contraband, avoid taxes and regulations, or evade price controls or rationing. Typically, the totality of such activity is referred to with the definite article, e.g., “the black market in bush meat”.

The black market is distinct from the grey market, in which commodities are distributed through channels that, while legal, are unofficial, unauthorized, or unintended by the original manufacturer, and the white market, in which trade is legal and official. Black money is the proceeds of an illegal transaction, on which income and other taxes have not been paid. Black money is often associated with money laundering, a process used to conceal the illegitimate source of the money.

Because of the clandestine nature of the black economy, it is not possible to determine its size and scope. Money itself may be subject to a black market. Money may be exchangeable for a differing amount of the same currency if it has been acquired illegally and needs to be laundered before the money can be used. Counterfeit money may be sold for a lesser amount of genuine currency.

The rate of exchange between a local and foreign currency may be subject to a black market, often described as a “parallel exchange rate” or similar terms. This may happen for one or more of several reasons:

The government sets (“pegs”) the local currency at some arbitrary level to another currency that does not reflect its true market value. Certain purchases of foreign currency may be permitted at the official rate; otherwise, a less favorable black-market rate applies.
A government makes it difficult or illegal for its citizens to own much or any foreign currency.
The government taxes officially exchanging the local currency for another currency, or vice versa.

A government may officially set the rate of exchange of its currency with that of other, “harder” currencies. When it does so, the peg may overvalue the local currency relative to what its market value would be if it were a floating currency. Those in possession of the harder currency, for example, expatriate workers, may be able to use the black market to buy the local currency at better exchange rates than they can get officially.

In situations of financial instability and inflation, citizens may substitute a foreign currency for the local currency. The U.S. dollar is viewed as a relatively stable and safe currency and is often used abroad as a second currency. In 2012, US$340 billion, roughly 37 percent of all U.S. currency, was believed to be circulating abroad. The most recent study of the amount of currency held overseas suggests that only 25 percent of U.S. currency was held abroad in 2014.

The widespread substitution of U.S. currency for local currency is known as de facto dollarisation and has been observed in transition countries such as Cambodia and in some Latin American countries. Some countries, such as Ecuador, abandoned their local currency and used U.S. dollars, essentially for this reason, a process known as de jure dollarization (see also the example of the Ghanaian cedi from the 1970s and 1980s).

If foreign currency is difficult or illegal for local citizens to acquire, they will pay a premium to acquire it. U.S. currency is viewed as a relatively stable store of value and, since it does not leave a paper trail, it is also a convenient medium of exchange for both illegal transactions and for unreported income both in the U.S. and abroad. More recently cryptocurrencies such as bitcoin have been used as a medium of exchange in black market transactions.

Cryptocurrencies are sometimes favored over centralized currency due to their pseudonymous nature and their ability to be traded over the Internet. Even when the underground market offers lower prices, consumers may still buy on the legal market, when possible, because: They may prefer legal suppliers, as these are strictly regulated and easier to contact. In contrast, black market vendors are unregulated and difficult to hold accountable.

In some jurisdictions such as the United States, customers may be charged with a criminal offense if they knowingly participate in the black economy; They may have a moral dislike of black marketing. In some jurisdictions such as England and Wales, consumers found in possession of stolen goods can have them confiscated if they are traced, even if they did not know they were stolen. Though they themselves do not usually face criminal prosecution, they are still left without the goods they paid for and have little if any recourse to get their money back.

This may make some averse to buying goods that they think may be from the underground market, even if in fact they are legitimate (for example, items sold at a car boot sale). However, in some situations, consumers may conclude that they are better off using black market services, particularly when government regulations hinder what would otherwise be a legitimate competitive service. For example, in Baltimore, many consumers actively prefer illegal taxi cabs, citing that they are more available, convenient, and fairly priced

Goods and services acquired illegally and/or transacted for in an illegal manner may exchange above or below the price of legal market transactions: They may be cheaper than legal market prices. The supplier does not have to pay for production costs and/or taxes. This is usually the case in the underground economy. Criminals steal goods and sell them below the legal market price, but there is no receipt, guarantee, and so forth.

When someone is hired to perform work and the client is unable to write off the expense (particularly common for work such as home renovations or cosmetologically services), the client may be inclined to request a lower price (usually paid in cash) in exchange for foregoing a receipt, which enables the service provider to avoid reporting the income on his or her tax return.

They may be more expensive than legal market prices. For example, if the product is difficult to acquire or produce, dangerous to handle, is strictly rationed, or is not easily available legally if at all. If the exchange of goods is made illegal by some sort of state sanction, such as with certain drugs or wildlife trafficking, their prices will tend to rise as a result of that sanction.

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